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Ruling

Subject: GST and boat charter

Question 1

Should GST have been applied to your charter of a vessel to B?

Answer

GST should have been applied to the entire vessel charter, that is, whether it occurred inside or beyond Australian Territorial waters.

Relevant facts and circumstances

You are registered for GST and own a vessel which was chartered to B to carry out work. You chartered the vessel under a time charter, ie. ship plus crew. B was hired to complete a task by an overseas based company. B required a marine platform to carry out the work and chartered the vessel to use as a platform. The vessel travelled from Australia to an overseas destination. The vessel cleared customs in its overseas destination travelled further to carry out the required work. On completion the vessel travelled back to Australia.

You initially raised an invoice with GST on the full amount. B believes that they should be exempt from GST for the duration of the charter while in overseas waters. The vessel was in Australian waters for some of the time. All costs were miscellaneous costs other than the customs fees were paid in Australia and GST had been paid by you on these purchases. Customs charges were paid in local currency, cost converted back to AUD.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 38-190

Reasons for decision

GST law allows for some services that are consumed outside Australia to be supplied GST-free. In this case we consider that B effectively consumed your services in Australia.

Detailed reasoning

A supply of services is a taxable supply and subject to GST if it meets the requirements of section 9-5 of the GST Act which states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c) the supply is *connected with Australia; and

(d) you are *registered, or *required to be registered.

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

Your supply of a vessel under a time charter arrangement meets the requirements of paragraphs (a) to (d) above; you make your supply in return for payment, you make your supply in the course of carrying on your enterprise, your supply is connected to Australia as it is done from your establishment in Australia and you are registered for GST.

However your supply, despite meeting the requirements of section 9-5 of the GST Act does not attract GST if it is either GST-free or input taxed. There are no input taxed provisions in the law that cover a supply of migration services.

Your services will be GST-free where they are made to an entity that is not in Australia at the time of your supply and the effective use and enjoyment of your supply takes place outside Australia. Item 3 in subsection 38-190(1) of the GST Act (Item 3) states:

38-190 Supplies of things, other than goods or real property, for consumption outside Australia
The third column of this table sets out supplies that are GST-free (except to the extent that they are
supplies of goods or *real property):

3 - Supplies used or enjoyed outside Australia

a supply:

(a) that is made to a *recipient who is not in Australia when the thing supplied is done; and

(b) the effective use or enjoyment of which takes place outside Australia;other than a supply of work physically performed on goods situated in Australia when the thing supplied is done, or a supply directly connected with *real property situated in Australia.

In the case of your supply of the vessel, the real beneficiary is considered to be B as it used the vessel as a marine platform for its work. The Goods and Services Tax Ruling GSTR 2004/7 notes at paragraphs 31 and 32, that the meaning of both 'not in Australia' and 'outside Australia' in Item 3 is 'not in Australia in relation to the supply'.

Broadly, companies that are incorporated in Australia are considered to be in Australia for GST purposes. Whether a company that is in Australia for GST purposes is in Australia in relation to a particular supply, it is necessary to examine the role played in relation to the supply by the presence of the company in Australia.

An internet search reveals that B is a registered Australian company limited by shares. In the first instance B is in Australia.

Further, if your supply to B is solely or partly for the purposes of B's Australian presence, B is in Australia in relation to the supply. There is a connection between the supply and the presence in Australia that is not a minor connection.

Alternately, if the supply is not for the purposes of B's Australian presence, but its Australian presence is involved in the supply, B is 'in Australia in relation to the supply', unless the only involvement is minor.

If the involvement of the Australian presence of B is limited to the carrying out of simple administrative tasks, as a matter of administrative convenience, that involvement is minor. The connection between the supply and the presence is so minor in nature that it is reasonable to conclude that the presence of the company in Australia is not in relation to the supply.

Tasks of a simple administrative nature include:

o payment of, or arranging for payment of, the supplier's invoice on behalf of the company;

o passing on an e-mail to the company;

o being a point of telephone contact to pass on messages to the company;

o being a mailing address or delivery contact on behalf of the company;

o being a point of contact for a visiting representative of the company; and

o on-forwarding information to the company.

On balance, it is considered that B was in Australia in relation to the supply you made to it as it is an Australian registered company that consumed a significant proportion of your supply within Australia.